Going back to work in retirement? What to keep in mind

September 09, 2018

Every week, Simply Money’s Nathan Bachrach, Ed Finke and Amy Wagner are answering your financial questions in The Cincinnati Enquirer. If you, a friend, or someone in your family has a money issue or problem, please feel free to send those questions to yourmoney@enquirer.com

Jean in Delhi Township: I’m 67 and have been retired for a few years, but I’m thinking about going back to work on a part-time basis or as a consultant. What are some of the financial issues I might run into?

Answer: This is a great question to ask, because everything from your taxes to your insurance to your Social Security benefits could be impacted.

First up, retirement accounts: If you qualify for your new employer’s retirement plan, you should still be able to contribute regardless of your age (in most cases). Just keep in mind that if you’re still working when you hit age 70 ½, you’ll still be required to take RMDs (Required Minimum Distributions) from a traditional IRA and any 401(k)s from a previous employer(s). However, you’ll likely be able to postpone your RMDs from your new 401(k) (check with the plan administrator). If you’re currently drawing from a pension, be sure to check with that administrator as well to see how going back to work will affect your payments.

Social Security: Given your current age, you have already reached your “Full Retirement Age” (FRA) for Social Security. This is good news – your benefits will not be reduced when you return to work (for some people, depending on their FRA, benefits can be reduced when returning to work). However, your Social Security benefits might be taxable. This will depend on your ‘combined income’ (your adjusted gross income + non-taxable interest + ½ of your Social Security benefits).

Health Insurance: If you’re already covered by Medicare, be sure to check with your Human Resources Department about how your new insurance coverage will coordinate with Medicare. You need to understand who ‘pays first’ to help ensure your bills are sent to the correct provider and to avoid delays.

Budget: Going back to work also means adding additional expenses to your budget that you haven’t needed in a while (wardrobe, gas/transportation, lunch, etc.). While these may not be huge expenses in the grand scheme of things, they’re still important to account for.

The Simply Money Point is that a full-blown ‘retirement’ isn’t for everyone. If you’re considering going back to work, just be sure you’re covering all your financial bases. Working with a trusted financial advisor, such as a CERTIFIED FINANCIAL PLANNER™ or Chartered Financial Consultant®, can be beneficial.

Kyle from Ludlow: My son is 23 and just landed his first “real job,” with a 401(k) and everything. He says he can invest in something called a target date fund, and he’s wondering if it’s a good idea. What are your thoughts?

Answer: Congratulations to your son!

A Target Date Fund is kind of like the ‘one stop shop’ of retirement plans. A fund is typically based on an expected retirement date, such as “2030,” or “2045,” or “2050,” then automatically adjusts your investment mix of stocks and bonds the closer you get to the date you choose. And they’re rapidly gaining in popularity: According to Vanguard’s recent report, “How America Saves 2018,” just over half of retirement savers now use a single Target Date Fund for their entire account. In 2004, none did so.

The benefit of a Target Date Fund is convenience. If you don’t have the time or knowledge to pick from the selection of individual funds for your 401(k), a Target Date Fund can be a good alternative. After all, investing in something is better than throwing your hands up in frustration and investing in nothing. However, there is a big downside: A Target Date Fund makes the same assumption about risk and appropriate investment mix for everyone in that fund – simply put, there’s no customization based on your needs or goals.

Here’s The Simply Money Point: For your son, who is in the early ‘accumulation’ phase of saving, using a Target Date Fund can be a great starting point. However, it’s probably not something he – or anyone – should use all the way up until retirement.

Responses are for informational purposes only and individuals should consider whether any general recommendation in these responses are suitable for their particular circumstances based on investment objectives, financial situation and needs. To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional advisor of his/her choosing, including a tax advisor and/or attorney. Nathan Bachrach and Ed Finke and their team offer financial planning services through Simply Money Advisors, a SEC Registered Investment Advisor. Call (513) 469-7500 or emailsimplymoney@simplymoneyadvisors.com.